Redefining Emerging Markets

Almost a decade after crafting the famous term BRIC—standing for Brazil, Russia, India, and China—to signify the four emerging markets that had the potential to change the economic makeup of the world, economist Jim O’Neill became the Chairman of Goldman Sachs Asset Management (GSAM) and was shocked to find that, although the world was changing, investors’ outlook on it was not. Despite both the global popularity of his BRIC concept and the economic success of the nations that comprise it, many people still viewed emerging markets as some sort of economic disease. This unfortunate realization drove O’Neill to understand one of his important tasks as the new Chairman of GSAM: to further redefine the way both Goldman Sachs and the world think about Emerging Markets.

In order to push this change in thinking, O’Neill coined the term “growth markets” to describe economies that contribute at least 1% to global GDP. These are markets that aren’t advanced like the United States or Europe, but can no longer be called emerging, for they have by all measures “emerged.” Including the four BRICs with the addition of South Korea, Turkey, Mexico, and Indonesia, these economies have enough depth that they are able to offer investors the same financial opportunity found in any market we would consider developed. They are very much relevant on the global economic scene today and will likely affect most aspects of global business in the near future.

The extent of these nations’ importance for the global economy is more easily seen when they are viewed in the aggregate. Of the world’s 6.8 billion people in 2010, these eight growth market nations accounted for almost half, with a collective population of about 3.37 billion people. In addition to their huge reserves of human capital, each of these nations has proven that they are able to flex their economic muscles, as they currently account for eight out of the ten top contributors to global GDP. In 2011 they accounted for 25% of the total GDP in the world, up from 15% in 2000, and this tremendous growth only promises to continue. GSAM predicts that, while the growth in real GDP from 2000 to 2050 will only be around 160% for developed markets, the expansion in growth market’s real GDP over the same period could be as much as 2,100%.

As the world economy emerges from its recent downturn, it is these growth market nations that are acting as the engine behind our progress. For the first time in the past 25 years the global economy is expanding at an annual rate as high as 5%, largely due to the expansion we are seeing in these eight nations. They are becoming increasingly vital for the world economy that relies on them for growth.

This shift in the economic makeup of the world is also a crucial opportunity for developed markets because the benefits that it offers them are enormous, and they must be seized. Even an economy as large as the United States has the potential to be positively affected by these growing markets in terms of foreign investment and exports. Clearly we have seen since the recession that the U.S. economy can no longer thrive on its own over-credited consumers, but growth can and must come from outside its borders.
Developed nations need only look to the recent transformation of Germany’s export industry to understand the importance of these global economic shifts and the effect they are having on the developed world. The entire structure of German exports has been turned on its head by these growth markets. It is, for example, very likely that by the end of this year Germany will be exporting a greater number of cars to China than to its developed market neighbor France.

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